Continuous improvement to IBC key to 7-8% economic growth rate: CEA Nageswaran

New Delhi: Improving the operational efficiency and speeding up the debt resolution process is the next step in bankruptcy reforms as continuous improvement to the insolvency and bankruptcy code (IBC) is important for strong economic growth rate, chief economic advisor in the finance ministry V. Anantha Nageswaran said here.

Speaking at the eighth annual day of bankruptcy rule maker, the Insolvency and Bankruptcy Board of India (IBBI), Nageswaran said that improving the operational efficiency of the Code was important for small businesses, given the need to keep legal costs low for them.

Improving the efficiency in the system comes down to using innovative resolution routes such as pre-pack arrangements for micro, small and medium enterprises, capacity building of resolution professionals across disciplines and minimizing delays in the proceedings, Nageswaran said.

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Operational efficiencies require a balancing act between fairness and fastness of resolution, he said, adding that a good bankruptcy regime is a backstop during downswings, reducing the need for costly macro prudential interventions.

“A continuously evolving and improving IBC framework is important for India to achieve a 7-8% growth rate over the next decade,” Nageswaran said. 

India’s G20 Sherpa and former chief executive of NITI Aayog Amitabh Kant, who was also present on the occasion, said IBC has marked a significant shift in India's approach to financial distress.

Non-performing assets are now at a historic low, bank balance sheets are robust, credit is growing at a healthy clip and growth is back on track in the Indian economy, Kant said. He also said that one must acknowledge some concerns regarding the present functioning of the IBC, indicating a need for a second generation of reforms.

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Analysis of IBBI's own data shows that insolvency resolution at the National Company Law Tribunal (NCLT) averaged 716 days in the last fiscal year, up from 654 days in 2022-23. Also, the average time taken for the admission of cases which stood at 468 days in FY21 increased to 650 days in FY22, Kant said, adding that an amendment to IBC was understood to be under the government’s consideration, which could expedite the admission process. 

Debt resolution

The institutional infrastructure of debt resolution needs a significant augmentation to improve admission and resolution, Kant said. Substantive changes to the IBC on issues of cross border insolvency, creditor rights, sector specific nuances and the pre-pack scheme were necessary, he said. Pre-pack scheme is a flexible scheme of debt resolution offered to small businesses. 

Former chief justice Ramalingam Sudhakar, president of National Company Law Tribunal, who was present at the event spoke about the need for manpower capacity addition and said, “Give me the numbers, I will give you the result.” 

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Debt resolution under IBC and cases under the Companies Act are dealt with by NCLT and its appellate tribunal. Sudhakar explained that parties often submit voluminous records while presenting their case, and giving a considered and fair decision in complex cases, following principles of natural justice, requires time.